Question

B C D E F G 1 Fraser Co. is considering a change to its cost structure. Below is the data relating to the current structure as well as the proposed change. 2 Current Structure Proposed Structure 3 Unit Sales 20,000 Unit Sales 20,000 4 Sales Price Per Unit $ 100 Sales Price Per Unit $ 100 5 Total Variable Costs (based on 20,000 units) $ 400,000 Total Variable Costs (based on 20,000 units $ 700,000 6 Total Fixed Costs $ 900,000 Total Fixed Costs $600,000 7 1.) Prepare a CVP Statement for each cost structure. Incorporate cell references and formulas where indicated. You can instantly create the 8 CVP Statement for the Proposed Structure, by copying and pasting your completed CVP Statement for the Current Structure. Make sure all 9 highlighted areas are completed. Try to avoid the headings when copying. You want to keep the Proposed Structure heading. CVP Statement - Current Structure CVP Statement - Proposed Structure 10 13 Type a Label Here 14 Type a Label Here 15 Type a Label Here 16 Type a Label Here 17 Type a Label Here Total formula cell reference formula cell reference formula Per Unit % of Sales cell reference formula formula formula formula formula 10 2 lice the contribution Marain technique to calculate the Broakoven naint in units and dollars for each scenario You can save time again hu

Answer 1

Answer-1:

CVP Statement - Current Structure CVP Statement - Proposed Structure Per unit 100 Sales (-) Variable costs Contribution margin (-) Fixed costs Net operating Income Total $ 2,000,000 $ $ 400,000 $ $ 1,600,000 $ $ 900,000 $ 700,000 Per unit 100 20 80 % of Sales 100% 20% 80% Sales (-) Variable costs Contribution margin (-) Fixed costs Net operating Income Total $ 2,000,000 $ 700,000 $ 1,300,000 $ 600,000 $ 700,000 $ $ $ % of Sales 100% 35% 65% 65

Answer-2:

Breakeven Units - Current Structure Breakeven Units - Proposed Structure Fixed costs Contribution margin per unit 11250 Fixed costs Contribution margin per unit 9231 Breakeven Sales Dollars - Current Structure Breakeven Sales Dollars - Proposed Structure Fixed costs Contribution margin per unit $ 1,125,000 Fixed costs Contribution margin per unit $ 923,077

Answer-3:

Net oparting income under both the structure is same. But in break even point there is a difference of 2019 in units and $201,923 in dollars. This has happened due to decrease in fixed cost of $300,000 and contribution margin per unit of $15.

Answer-4:

Degree of Operating Leverage - Current Structure Degree of Operating Leverage - Prposed Structure Contribution margin Net Income 2.29% Contribution margin Net Income 1.86%